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Centre in FDI double somersault

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  • Published 12.07.14

New Delhi, July 11: The BJP’s tightrope walk on foreign direct investment was on display in the Lok Sabha today with the government executing a double somersault on a key announcement in the budget tabled yesterday.

Junior finance and commerce minister Nirmala Sitharaman first stated in the House that the government was discussing FDI in defence and railways but had not yet taken the final decision.

Chahe railway sector ho ya defence sector mein ho, abhi charcha shuru hui hai, tai kuchh nahin hua hai… (Whether in the railways or in defence, discussions have begun, nothing has been decided),” Sitharaman said in response to a question from Congress MP Rajeev Satav.

Yesterday, finance minister Arun Jaitley had said in his budget speech: “The composite (FDI) cap of foreign exchange is being raised to 49 per cent with full Indian management and control through the FIPB route.”

Congress members seized upon the divergence and interrupted Sitharaman, much to the embarrassment of the treasury benches.

Eventually, the minister said: “As regards the 49 per cent FDI in defence…. allowing 49 per cent FDI is a decision of the government.…”

The BJP has always been queasy while taking a public stand on foreign direct investment. Although many BJP leaders back FDI in private, few say so in public because of a perception that it will affect its core constituencies like retail and dilute pet themes such as national security. Even Prime Minister Narendra Modi has not yet taken an unequivocal stand on FDI in multi-brand retail although the BJP officially opposes such investments.

Today, after Sitharaman spoke, officials said the department of industrial policy and promotion had initiated a discussion on FDI caps in different sectors and was in the process of garnering the views of ministries concerned on possible relaxation.

However, a high-level decision seems to have been taken in the run-up to the budget to fix 49 per cent as the defence FDI cap with riders on Indian management and control.

FDI in defence had been particularly contentious in the past with some ministries, including commerce, pushing for majority control by foreign firms while others, such as defence, contending against that.

Some Indian companies have also been fighting tooth and nail against allowing foreign majority control of Indian defence corporations, contending that such a relaxation will not prompt foreign armament makers to transfer technology fully.

The Indian companies feel that with the European markets in decline, and India becoming one of the largest defence buyers, western manufacturers would be forced to part with technology to joint ventures as long as they were assured of equitable profits, royalty and safety of proprietary technology.